Vaessen v. Woods

• Decision Date: 05 April 1984
• Court: California Supreme Court
• Parties: , 677 P.2d 1183 Janet VAESSEN et al., Plaintiffs and Respondents, v. Marion J. WOODS, as Director, etc., et al., Defendants and Appellants. Janet VAESSEN et al., Petitioners, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; Marion J. WOODS, as Director, etc., et al., Real Parties in Interest. L.A. 31617, L.A. 31602.

Page 893

200 Cal.Rptr. 893

35 Cal.3d 749, 677 P.2d 1183

Janet VAESSEN et al., Plaintiffs and Respondents, v. Marion J. WOODS, as Director, etc., et al., Defendants and Appellants.

Janet VAESSEN et al., Petitioners, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Marion J. WOODS, as Director, etc., et al., Real Parties in Interest.

L.A. 31617, L.A. 31602.

Supreme Court of California In Bank.

April 5, 1984.

Marilyn Kaplan Katz, Western Center on Law & Poverty, Inc., Los Angeles, Stanley E. Doty, Legal Aid Society of Santa Clara County, San Jose, for plaintiffs and respondents.

Gordon Rawlins, G.R. Overton, Deputy Attys. Gen., Los Angeles, for defendants and appellants.

REYNOSO, Justice.

At issue is whether defendant California Department of Social Services' policy of treating income tax refunds as income for purposes of reducing the amount of assistance paid to recipients of aid to families with dependent children (AFDC) comports with applicable state and federal laws governing administration of the AFDC program. As we explain, we find the policy is inconsistent with the provisions of the federal statutes and with the purposes of this program of public assistance. Under the controlling provisions such sporadically received monies can only reasonably be deemed resources which have no effect on the amount of a family's grant unless they combine with other existing resources to exceed the maximum allowed by statute.

The Director of the Department of Social Services (hereafter defendant) appeals from an order preliminarily enjoining the department from enforcing a regulation pertaining to payment of AFDC. (Vaessen v. Woods, L.A. 31617.) Plaintiffs, representing affected AFDC recipients throughout California, petition for mandamus to compel a further injunction of a similar regulation which was subsequently promulgated. (Vaessen v. Superior Court, L.A. 31602.) We ordered the cases consolidated in order to determine the validity of the policy embodied in both regulations. We affirm the judgment in L.A. 31617 and order issuance of the writ prayed for in L.A. 31602.

I

The named plaintiffs represent the class of California applicants for and recipients of AFDC whose benefits have been or will be reduced or denied due to their receipt of one or more income tax refunds for 1978 and subsequent tax years. They are recipients who have been employed long enough in a given year to accrue some withholdings, but who have not been long or profitably enough employed to attain self-sufficiency at a standard of living above the minimum standard of need defined by Welfare and Institutions Code section 11452.

Janet Vaessen's plight is typical of the difficulties created by defendant's policy of treating tax refunds as income. Ms. Vaessen is the sole support of her son. In the spring of 1979 she planned to study for the state nursing board examination. Passage of the examination would be a significant step enabling her to enter a work force where she could eventually become fully self-supporting. In April she received an income tax refund of $81.20. She duly reported the receipt to her eligibility worker. She then spent the refund money to pay overdue bills, to purchase clothing and for transportation. Nevertheless, two months later her AFDC grant was reduced by the full $81.20, to a total sum of $206. ¹ As a result, Ms. Vaessen had to borrow money simply to pay the family's rent of $225, and was without funds with which to pay for utilities, transportation, laundry and other essential items. Instead of studying, she had to look for some kind of work that would enable her to meet the family's immediate survival needs.

Plaintiff-in-intervention Carol Esquibel supports her two young children. Her August 1979 grant was reduced to $73 as a result of the receipt in June of $381 in state and federal tax refunds. By August, however, the tax refunds had long since been spent on automobile repairs and the purchase of shoes and clothing for the children. As a result Ms. Esquibel could not pay her rent. Her family suffered the extreme hardship and disruption of court proceedings which resulted in the family being scheduled for eviction by the sheriff at the end of August.

The other plaintiffs, named and unnamed, suffered similar hardships as they tried to eke out an existence even though the meager assistance provided to them was reduced or denied altogether because of the earlier receipt of tax refunds. Pursuant to Welfare and Institutions Code sections 11450 and 11452, California provides grants to needy families according to the size of the household. Currently, a family of two receives enough aid to bring its total monthly income to $408; a family of three is allotted $506, a family of four $601 and a family of ten or more may receive $1,071. As this court noted in County of Alameda v. Carleson (1971) 5 Cal.3d 730, 97 Cal.Rptr. 385, 488 P.2d 953, these standards are "minimum basic standards of adequate care" and "not necessarily reflective of actual need." (Id., at p. 742, fn. 14, 97 Cal.Rptr. 385, 488 P.2d 953; see also Welf. & Inst.Code, § 11452; California Welfare Rights Organization v. Carleson (1971) 4 Cal.3d 445, 448-452, 93 Cal.Rptr. 758, 482 P.2d 670.) Thus, it is neither a surprise nor an indication of careless spending to find that recipient families must often utilize their tax refunds to meet current pressing needs and are unable to "save" the funds to meet the expenses of daily living two months later. The record shows that the department estimated that in the fiscal year 1976-1977 approximately 22,700 California AFDC recipients would receive federal income tax refunds and that the average amount would be approximately $131 per recipient. At oral argument plaintiffs explained that the number of families receiving tax refunds represents less than 5 percent of the total number of AFDC recipients, even though 60 percent of recipients work at some time during the year.

The original plaintiffs filed a complaint seeking mandamus (Code Civ.Proc., § 1085), declaratory and injunctive relief, and retroactive payment of AFDC benefits withheld pursuant to the department's policy of treating income tax refunds as income rather than as property resources. Defendants are the director, the department and the State of California. Plaintiffs claim that the department's policy violates the purposes of the AFDC program, the language of federal regulations--since deleted--which defined income as funds "actually available for current use on a regular basis" (45 C.F.R. § 233.90, (a)(1) as promulgated in 1975), and this court's holding in County of Alameda v. Carleson (1971) 5 Cal.3d 730, 97 Cal.Rptr. 385, 488 P.2d 953, appeal dismissed (1972) 406 U.S. 913, 92 S.Ct. 1762, 32 L.Ed.2d 112.

On July 27, 1979, the Los Angeles Superior Court granted a preliminary injunction restraining defendants from denying AFDC benefits to the named plaintiffs pursuant to their policy regarding tax refunds. The parties later stipulated to an additional injunction covering the plaintiffs in intervention. On April 14, 1980, after the class had been certified, the court issued an injunction restraining defendants from reducing or denying benefits of all recipients of and applicants for AFDC in California on this basis. The order was made effective immediately, compelling payment of full benefits in the month of April 1980. Defendants appealed. (Code Civ.Proc., § 904.1, subd. (f).) Pending the appeal, however, they agreed to abide by the injunction and treat refunds from the 1980 tax year as resources when they were received in 1981. (Vaessen v. Woods, L.A. 31617.)

In response to the federal Omnibus Budget Reconciliation Act of 1981 (Pub.L. No. 97-35, hereafter the OBRA) the department promulgated new regulations which classify, inter alia, monies withheld from recipients' paychecks for state and federal income tax purposes, as income actually available upon receipt of the paychecks and require corresponding reductions in grant payments. At the same time the department announced its intention to resume treating income tax refunds as income in the month received. Under these regulations excess withholdings would be considered as income to recipients twice: once when withheld and a second time when returned.

On April 23, 1982, plaintiffs sought another preliminary injunction ordering the department to release any benefits for April 1982 withheld as a result of its policy regarding refunds from the 1981 tax year. The Los Angeles Superior Court granted a temporary restraining order. After further briefing and argument, however, the court denied a preliminary injunction and dissolved the restraining order. Plaintiffs then sought a writ of mandate. (Vaessen v. Superior Court, L.A. 31602.)

The Court of Appeal summarily denied mandamus. On the same day it issued its published opinion reversing the original preliminary injunction. Pending final determination of L.A. 31602 we ordered the department to treat as resources instead of as income, all income tax refunds received at any time during which real parties in interest (defendants) were including income tax withholdings as income for AFDC purposes, and all refunds attributable to income tax withholdings that were included in income in determining the allowance or amount of AFDC benefits.

The practice of "double counting" was suspended by a decision of the United States District Court for the Northern District of California permanently enjoining the department from considering monies withheld for income tax purposes as income available to AFDC recipients. (Turner v. Woods (N.D. Cal.1982) 559 F.Supp. 603 aff'd. (9th Cir.1983) 707 F.2d 1109, cert. granted Feb. 27, 1984 sub nom. Heckler v. Turner, 465 U.S. 1064, 104 S.Ct. 1412, 79 L.Ed.2d 739.) Its validity is therefore not now considered.

II

AFDC was established by the Social Security Act of 1935. (42 U.S.C. § 601 et seq.) It is jointly funded...